Don Spatz, 10/3/07: Investigators amazed system survived so long

Yeah, I’ve heard your mocking: The now-bankrupt Personal Financial Management and its mortgage customers broke the first rule of the stock market: Never, ever, ever borrow money to invest.And investors in the company, you say, brushed right past the second rule you heard from your momma: “If it sounds too good to be true ...”

Why on earth, you ask, would otherwise reasonable people believe the complicated scheme — borrow more than they need, sign a passel of legalese for two mortgages, let company owner Wesley Snyder invest the extra — could save them thousands of dollars?

And at a time the legitimate market was paying around 5 percent, why would investors believe they could get guaranteed returns of 8 percent, 12 percent and 14 percent from these mortgage schemes?

Here’s why: For more than 20 years, the system worked.

That’s the consternation investigators have in probing Snyder’s Exeter Township business, a house of cards that came tumbling down Sept. 18 when its bankruptcy left some 800 people owed $40 million.

The investigators don’t know how it went on so long.

Mortgage holders paid off one loan and went back for another because the system worked. Investors got paid off, as promised, for years.

Snyder was considered a pillar of the community, doing business at the same place for more than 20 years. He’s a former Exeter teacher, a former banker. In the 1980s he taught financing at the Berks Real Estate Institute.

Sure, a lawsuit claims it was all a Ponzi scheme, but Ponzi schemes don’t last, can’t last, for two decades.

Even so, his investment scheme had so many risks in the legitimate market that nobody knows why the house of cards didn’t come down long ago.

Now, hundreds of people have lost up to hundreds of thousands of dollars each.

One investor who lost his money told me his son was going to borrow money from a bank at 8 percent to invest it at the 14 percent Snyder was promising recently — and only an emergency trip to take his wife to the doctor saved him.

The son missed the appointment with Snyder, and by the time he could reschedule it the company had closed.

Even Snyder’s own employees got stuck; many had invested heavily in the company, trusting the boss.

Several state agencies are probing what happened. It will take a long time to figure it all out.

But meanwhile, before you belittle the folks who lost money here, consider this: For 20 years, they paid less than you did for a mortgage, and made more than you did on investments.

Give them a break for becoming believers.

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Some political ironies here.

First, city Councilman Stephen P. Fuhs, has a McMahon for Mayor sign in his front yard.

Fuhs is a Republican, but is supporting Democrat McMahon and snubbing Republican mayoral candidate Keith Stamm.

Meanwhile, former Mayor Joe Eppihimer was a Democrat, but had been running for mayor in this election as an Independent. But on the ballot, he’ll be listed under the new Voters for Eppihimer party.

When candidate John Wiggins got first position on the Independent ballot, the county elections office was going to put Eppihimer in the second slot.

However, former Elections Director Kurt Bellman told the office, rather nastily but accurately, that state law and the vote-counting computer system require only one candidate per party.